A Dip in Unemployment Rate
In a surprising turn of events, Canada’s unemployment rate has dipped to 5.7% for the first time since December 2012. Earl Davis, the head of fixed income and money markets at bimo Global Asset Management, expressed his surprise at this number during an analysis of the latest employment figures. The expectation was for the rate to rise to 5.9% due to the influx of working-age immigrants coming into Canada. However, with an increase in job openings and opportunities, the employment number has seen a positive dip.
The Rise of Part-Time Work
While Canada has added 37,000 new jobs in January, it is worth noting that more of these positions are part-time rather than full-time. Davis acknowledges that having more full-time jobs is preferable, but he emphasizes that any increase in employment is a good thing. The prevalence of part-time work reflects the uncertainty surrounding the economy. Business owners, hesitant to commit to full-time hires, opt for part-time employees. However, as the economy improves, these part-time positions have the potential to become full-time.
The Impact of Rising Wages
Another positive aspect of Canada’s job market is the rise in average hourly wages, which have increased by 5.3% compared to last year. This bump in wages can greatly benefit everyday Canadians as it outpaces the rate of inflation (4%). Individuals will find themselves earning more than they are spending, alleviating some of the burdens associated with the cost of living.
Implications for the Central Bank
While workers may celebrate the increase in wages, it can pose challenges for the Bank of Canada when it comes to deciding on interest rates. The bank prefers wage increases to fall within the range of 2-3%. When wages surpass 5%, concerns arise as employers may need to raise prices to cover the additional costs. This potential wage-price spiral prompts the central bank to maintain interest rates at their current levels and could delay any plans for easing them.
Predictions for the Future
Looking ahead, Davis and his team at bimo Global Asset Management remain optimistic about Canada’s economy. Their outlook for 2024 is constructive, and the recent job numbers align with their predictions for growth. They anticipate the economy to maintain employment levels below 6% and foresee a potential upside surprise to GDP. This positive outlook is largely tied to the strong performance of the United States, Canada’s largest trade partner. As the US economy thrives, Canada is likely to experience positive ripple effects, albeit with some delay.
In conclusion, Canada’s employment numbers for January have brought unexpected positive surprises. The decrease in the unemployment rate, the rise of part-time work, and the increase in wages all contribute to a promising outlook for the country’s economy. While challenges remain, such as the Bank of Canada’s concerns about wage-price spirals, there is room for cautious optimism. As the year progresses, Canada may continue to benefit from the strong performance of its neighboring trade partner, the United States.